Grenall v. United of Omaha Life Insurance Company
165 Cal. App. 4th 188, 80 Cal. Rptr. 3d 609 (2008)
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Rule of Law:
A contract for a life annuity cannot be rescinded for a unilateral mistake of fact where the annuitant was unknowingly suffering from a terminal illness at the time of purchase, because the annuitant inherently assumes the risk of their own longevity.
Facts:
- On October 2, 2001, Jean M. Simes submitted an application and a single premium of $321,131 to United of Omaha Life Insurance Company for an immediate annuity.
- United issued a 'life only' annuity policy, which provided for monthly payments of $3,000 to Simes for as long as she lived.
- At the time she purchased the annuity, Simes was unaware that she was suffering from terminal ovarian cancer.
- Simes received three monthly benefit payments under the policy.
- On January 25, 2002, less than four months after purchasing the annuity, Simes was diagnosed with ovarian cancer.
- Simes died on January 30, 2002, less than a week after her diagnosis.
Procedural Posture:
- The Estate of Jean Simes sued United of Omaha Life Insurance Company in a California trial court for breach of contract and declaratory relief.
- United moved for summary judgment; the trial court granted it on the breach of contract claim but denied it on the declaratory relief claim, finding triable issues of fact regarding mistake.
- After further discovery, United filed a renewed motion for summary judgment on the remaining declaratory relief cause of action.
- The trial court granted United's second motion for summary judgment, concluding that Simes bore the risk of any mistake regarding her health and entered a final judgment in favor of United.
- The Estate (appellant) appealed the final judgment to the California Court of Appeal.
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Issue:
Does an annuitant's unknown terminal illness at the time of contracting constitute a mistake of fact sufficient to rescind a life annuity contract?
Opinions:
Majority - Stein, J.
No, an annuitant's unknown terminal illness at the time of contracting does not constitute a mistake of fact sufficient to rescind a life annuity contract. To rescind a contract for a unilateral mistake of fact, the mistaken party must show they did not bear the risk of the mistake. In a life annuity contract, the very essence of the bargain is a wager on longevity; both parties assume the risk that the annuitant may die earlier or live longer than their average life expectancy. Simes, by entering into a 'life contingent' contract, necessarily assumed the risk of her own uncertain health and lifespan. Therefore, her estate cannot establish an essential element for rescission, as the risk of the mistake was allocated to her as a matter of law.
Analysis:
This decision reinforces the principle that life annuity contracts are aleatory, meaning they depend on an uncertain event. The court clarifies that the risk of an annuitant's lifespan, including unknown health conditions, is the central risk contemplated and allocated by such a contract. This precedent makes it exceptionally difficult for estates to challenge life annuities based on the annuitant's premature death, providing significant legal stability for the insurance industry that issues these products. It establishes that the nature of the contract itself assigns the risk of a mistake about one's health to the annuitant.
